The objective of our proposed research is to determine the extent to which the need for drugs causes the drug addict to engage in criminal activity and to analyse how drug use affects the addict's participation in legal market activities. We specify a three equation econometric model which allows for the plausible two-way relationships between drug use, crime, and legal earnings. We hypothesize that the drug addict's participation in criminal activities is a function of his expeditures on drugs, his income generating opportunities in legal markets, and other socio-economic and family background variables which may predispose the addict toward criminal behavior. To take account of the possible causality running from consumption of drugs to participation in criminal activities, we also posit that drug consumption is a function of a function of legal and illegal income-producing market activities and other background variables which may indicate a predisposition toward drug use. Finally, we postulate a relationship that expresses legal earnings as a function of criminal earnings, size of habit, and other variables which have been shown to be determinants of incone in legal markets. We employ two-stage multiple regression analysis to separate out and quantify the effects of explanatory variables and determine whether these relationships are statistically significant. The data for our analysis are derived from the 1970 Phoenix House survey of their residents.